Park Ohio Holdings Corp (PKOH) 2008 Q1 法說會逐字稿

Good morning and welcome to the first quarter 2008 results conference call. At this time, all participants are in a listen only mode. After the presentation, the company will conduct an question and answer session. Today's conference is also being recorded. If you have any objections, you may disconnect at this time. Before the conference call begins, please remember that the company will be discussing some issues that are historical and some issues that are forward-looking. When the company speaks about future results or events, there are a variety of factors that may materially change the actual results from those projected. A list of relevant factors may be found in the earnings press release as well as in the company's 2007 10-K filed with the SEC on March 17, 2008. The company undertakes no obligation to update any forward-looking statements whether a result of new information, future events or otherwise. Additionally, the company may discuss EBITDA. EBITDA is not a measure of performance under generally accepted accounting principals and is considered a non-GAAP financial measure as defined in the SEC. The company may present EBITDA because management believes that EBITDA could be useful to investors as an indication of the ability to incur and service debt and because EBITDA is a measure used unde their credit facility to determine whether they may incur additional debt under such facility. For reconciliation from income before income taxes to EBITDA, please refer to the company's current report on form 8-K furnished to the SEC on May 12, 2008. Now the meeting will be turned over to Mr. Edward F. Crawford, Chairman and Chief Executive Officer. Gentlemen, you may begin.

Welcome to the first quarter 2008 conference call. We will begin today with a presentation from Matthew Crawford, the President and COO of the company. Matt?

Thank you very much and good morning.

Our first quarter results continued to reflect strong performance from our manufactured product segment, offsetting ongoing weakness from Supply Technologies and our Aluminum Castings group. On a consolidated basis, revenue was flat at $267 million, and EBIT, after adjusting for a one-time gain for an asset sale in the first quarter of 2007 was down only slightly to $12.748 million. EPS was down from $0.45 to $0.30 but if adjusted as well for last year's one-time gain, the year-over-year results were largely consistent with last year's performance. Looking at the segment, Supply Technologies, revenue was down approximately 7% versus 2007. The shortfall was felt almost entirely in the heavy duty truck, and to a lesser extent, auto markets. These markets, while already effected by soft demand, were even more challenging during the quarter due to strikes at Navistar, Volvo and American Axle. Most other areas showed stable performance with some notable strength in recreational equipment segment.

Sequential revenue from the fourth quarter was up 1.4%, largely on account of new business. BIT was down significantly during the quarter to $4.7 million, although the significant contributor to this under performance was the drop in sales, we are also beginning to see pricing pressure on freight from oil and gas surcharges and raw material input increases such as steel. We have been actively addressing these issues and expect an improvement in margins as we get further into the year. Turning to manufactured products, revenue was up again during the quarter by almost 12% to over $97 million. Growth was driven through our forging and industrial equipment businesses which are both seeing strong global demand. Of particular interest is the quoting and order activity from Russia and the Middle East, these are relatively new markets for for us. EBIT was up 39% to greater than $13 million or a margin of 13.6%. This increase is consistent with the additional revenue and the significant amount of operating leverage which exists in these manufacturing operations. Despite weaker volume in our rubber business, segment margins were also enhanced by better margin performance as the operations improved year-over-year.

Looking at aluminum castings, despite some new business, aluminum casting sales were down 3.7% to $40.5 million due to lower unit -- excuse me, due to lower unit volume by platform. EBIT was also down with a loss of just over a million dollars. Ed will talk about these in his comments, or he will talk about this unit in his comments. Turning to the balance, sheet non-cash working capital increased by $18.1million during the first quarter. This increase is typical to support our revenue strength and the end of the first quarter and the second quarter. U.S. bank borrowings increased to $172.9 million to support the growth in working capital, $4.3 million worth of capital expenditures and a temporary increase in our cash balances. We expect capital expenditures to fall between $16 million and $18 million, resulting in a year end positive cash flow of between $20 million and $25 million. We expect a meaningful amount of this may be entered in foreign countries, so we are uncertain how much will be available for U.S. debt reduction. Cash taxes for the quarter were $2.1million.

Although our performance in the first quarter represents a slow start to the year, we are pleased with the progresses being made at both Supply Technologies and the Aluminum Castings group. Therefore, we reaffirm our EPS guidance of $2.10 to $2.25. Thank you. Ed?

Thanks, Matt.

Now, let's take a brief look at this (inaudible) and particularly the non-(inaudible) Supply Technology -- I'm sorry, it's hard to give up these great names. But the supply tech, when we look at the first quarter-over-quarter, I want to remind all of us that the flat spot in trucking, the real flat spot was in the second quarter of last year because the first quarter was still a run up on the trucking. Really, the major decline started in the second quarter of last year. And it went on to be a very difficult year where we explained to everyone that we've lost as much as $100 million in trucking sales. In the numbers Matt talked about as far as guidance is concerned, we are not really expecting any uplift in the trucking, in the Supply Technology side for the balance of this year, but we have not seen any more decline. So, it continues to have a rather significant effect on not only the revenue side of it, but the profitability, but again, keep in mind we have not lost any customers or any potential to rebound with the trucking event takes place, which everyone is anticipating now in '09 and '10 where we will be very, very strong and return to some numbers we have seen before. So, this is, again, continuing delay in the rebound, but it will be there. We have been forced to carry the expenses, along with being prepared for a rebound. We sense it's coming, but when in the future will be there. But again, we are not looking for much help or don't expect much help in meeting our goals for this year, early rebound in the trucking.

Moving onto the aluminum, I want to again, if you take the sales in the first quarter of $40 million by 36 and extend that through the year, basically are similar numbers to last year in revenue. So the revenues are embedded in the sales, we have written a new business. There is always expenses and actually, a little of the expenses, the start up and the ramp up of the units and new business, extend a little bit into first quarter. But I want to share a figure with you, I think it's important. If you take, for example, when you look at -- we sell on the platforms, steering knuckles on all your cars and we have different cars. Let's just take two cars for example, the Dodge Durango and the Jeep Grand Cherokee. These are two models in one of our plants which goes into Missouri for assembly. We projected, based on their numbers, projected in knuckles, for example the Grand Cherokee for the first quarter of 106,000. They were ordered, this we were prepared to make and we actually shipped 66,000. In the Dodge Durango, which is a great southern vehicle, we thought there would be 45,000 sets -- 38,000 sets. So we haven't lost any business, we have gained business.

We have talked about this reaching a $200 million run rate sometime this year, but it is all based on the platforms and the cars and the anticipation of the cars being sold. Now, what I'm trying to point out is we do have the sales, we have written the sales, and when this all comes back when they sell more cars, this business will begin to go in the direction we have been long, long, long awaiting, toward profitability and revenues. Which, if there's any glimmer of hope here, we were able to, at least on the projected basis, be flat over years and sales. If we hadn't written a new business, if we didn't have a bright future, this picture could look worse. So, we continue to believe that we are going in the right direction there. Our capital equipment business speaks for itself. It is dynamic and continues to be so, and it's really doing you a great job right now in creating not only the revenues, but the profitability for the company. But we are not at the point we want to give up on applied technology or the aluminum business. We have -- the trucking business will be back, that's why we are still in here with our guidance. More important, I think the aluminum business, as we sell more cars, this dramatically affects it.

So we have the cars, we have the platform, the customers. I think we are the low cost producer on the aluminum side and I continue to be optimistic about the future. I would now like to turn over the call to our stakeholders and answer questions.

At this time the floor is now open for questions. (OPERATOR INSTRUCTIONS) Our first question is coming from Richard Paget with Morgan Joseph. Please go ahead.

Good morning, guys.

Good morning.

You talked about having pretty good leverage with the manufactured products and given these revenue run rates, and I realize it's a little bit more difficult to project given the new accounting standards, but, is this now north of a 13% operating margin business? I mean, it's been kind of continually creeping up. If we can -- if you guys can continue to maintain these level of sales, should -- is that the way we should look at it going forward?

Why don't you take that? Richard, I think the issue -- this is Matt talking. It's a little bit hard to forecast that. There is no question that strong rail and aerospace markets and strong international stell and metals markets will continue to help this business. To project an exact margin is a little bit challenging, because we do get large equipment orders and those will tend to affect, based on what margin those are taken at, will tend to affect the margin for the quarter. So that's an issue. I think that the extremely high builds in both aerospace and locomotive right now, military particularly are helping, so yes, I think we are doing very well on that. I think whether or not we can stay above that 13% level really depends on if we continue to see the kind of heightened buying that we are currently seeing. Also, is a significant factor in that is this ongoing turn around in our rubber business . That business, as everyone knows, has underperformed in the past, it is coming around slowly. It is still not a very profitable unit, so to the extent that we can continue to improve that performance is going to help as well. So I think that's a good target for us in the sort of interim picture.

Okay, and then on the aluminum product segment, given your guys' cost structure, and I know you said there is some start up costs in new business here, but if you guys aren't making a big profit, that probably means a lot of your competition isn't as well. So maybe you could talk a little bit about the competitive landscape and how you are seeing the other players out there.

Well, as I think I've talked about the past, there is, in every aspect of the Detroit supply chain to the auto companies, the attraction of the number of competitors. The number of people in this space continues to decline, with another company going out of business in the last six months. So we do have a consolidation. And this will, I think, from the long-term perspective, be very, very good for the prospects of profitability, because where there were 14 or 15 people in this business, and now it's really down to three or four, at most, that have our capabilities to make what we call critical safety parts. And we are talking about critical safety parts, we are talking about knuckles, that steer the front end of the cars and the brake calipers as well as brake cylinders. So,we do have a consolidation. When the car levels of any normalcy return, we should be in the very, very strong position from the standpoint of profitability and again, to grow the company. So we are all impatient, but if you just take the Grand Cherokee and just think of that Cherokee and think of the projected numbers we were working with in the actual sales, they will be back selling these cars or one of the platforms or more of the platforms. So, if we have a, a real down in --we are not going to be 16 million cars, we're going to be -- let's get worst case, 12 million cars, we just plan because of our cost structure and our union-free facilities and clearly we have that position in the industry. And with our quality, we'll get a bigger share of a declining market, which I can say, at least I can think that it's a growth business. If you in fact can grow the business in a declining market by taking a bigger market share, because of the quality of service and our ability to compete and less overall competition.

Okay. And then on the corporate costs, they are a little bit higher than I thought. Any kind of one-time items in there?

Yes, the -- if you compare last year to this year, the $2.3 million gain on the sale of the asset held for sale reduced that number from last year. So it's up a few hundred thousand dollars this year, which are a variety of things. Some stock-based comp and building costs.

Okay. Thanks, I'll get back in queue.

Thank you. Our next quey from Michael Levine with BB&T. Please go ahead.

Good morning.

How are you doing?

Good. I thought, you just talked about the corporate costs versus last year. But even just to the fourth quarter, they appear up quite a bit. I mean, same reasons? Or --

There were some one-time credits in the fourth quarter that offset as well. But the trend is slightly upward for the cost reasons that I talked about.

Okay. So going forward, this is about what we should expect?

Yes.

Okay, okay. Any comments -- you mentioned some of the -- in the manufacturing sector, you are getting some good international business. What kind of end markets is that, are driving that?

Matt, why don't you take that? Those are the same that we have talked about in the past, frankly. We are doing very well by shipping equipment to countries that are quickly developing. India, China, for example, Russia. Most of the markets we're involved in are heating and melting, largely for steel applications, but not necessarily. But that's the most significant of which, whether that be making steel, hardening steel, melting steel, all applications. Also, we are very involved in the oil and gas market by way of our pipe threading equipment. In each of these segments, not only do we make the equipment, but frankly, more importantly, we provide the spare parts and service in the after market. So, our -- the demand for that product has not only been for new equipment. Much of which is made out of the U.S., but also made in Europe and Asia much of which is made out of the U.S. but also made in Europe and Asia. But also, really strong revenue and profits from our international service and sales offices as well.

The year-over-year growth, which is nice. How much of that is domestic? How much is international?

We haven't broken that out, but probably a disproportionate share is international. The other piece is, part of the strength that we are seeing in our rail forging businesses, we are shipping locomotive crank shafts to China.

Okay. And so, is this kind of -- if we just look for the rest of the year, and how these businesses are doing, it sounds like trucking and autos are going to be about the same as first quarter, or at least directionally throughout the year and manufacturing products will continue to be strong?

You are from a revenue perspective or --

Yes, a revenue perspective.

Yes, I think from a revenue perspective, I think that we will continue to see the benefit, we hope, of some of the new business we are seeing in the casting business. Incrementally, we hope to see a little bit of the -- a benefit from some of the new business we have signed it at the Supply Technologies, but clearly, those will be moderate in terms of growth relative to the strength we are seeing in the manufactured products segment.

Right, but Supply Technology and Aluminum Products will continue to struggle from the units, the trucking units and units throughout the year.

Well I, let me in on the auto side here (inaudible) aluminum. I think we will have -- I don't want first quarter to appear to be what we feel is the overall performance for the year. We will have an improvement in the aluminum casting business in the remaining portion of the year. It will be definitely an improvement over the first quarter performance.

Okay, that's helpful. Thank you very much.

Thank you.

Thank you. Our next question is coming from Alan Weber, please go ahead.

Hello?

Yes. Alan?

Hi. A few questions. One is on the aluminum products, can you talk about the -- what impact, long term or short-term, kind of the shift toward smaller lighter vehicle compact cars has versus maybe SUVs?

Well, anytime you are moving to have smaller cars and lighter cars for fuel efficiency, that bodes very well for aluminum, okay? It is clearly the assembly rather than iron of choice. So, we see absolutely a clear increase. I don't have the statistics right with me today, but I think over the last 10 years, every year there is more aluminum in cars than there is -- than the year before in a car per car designed into it. So we don't see any -- because the cars, the smaller cars, obviously have -- and we are in the safety critical parts. And when you go to knuckles, steering knuckles, it doesn't make any difference. Right up in the front of your car, there is these cast aluminum knuckles that (inaudible) steal the cars. So there is going to be the steering knuckle is going to be on the cars, maybe it will be a little bit smaller, more highly engineered, but the same for the brakes cylinders and the calipers, so we are very heavily embedded in the safety critical issue in the cars. So in the long run, the knuckles of the cars will be the size regardless of the size.

Okay. And are you servicing the import? Or that's not aluminum?

You mean the import companies?

Yes, the import -- yes, Toyotas, et cetera.

Yes we do.

Okay. Ask then, when you talked about the cash flow, more of it being international, and you alluded to the debt pay down, does that mean we just basically, we are going to see cash continue to build on the balance sheet as opposed to just reducing debt?

We are working through that. We have some strategies that we anticipate being able to execute on the near term that should provide some opportunity to get is to repatriate some of that cash. So, I would expect us to be sort of a little bit smarter about that throughout the balance of 2008, and be able to bring some of that back. Having said that, it is a, definitely a strategic issue that we are dealing with here, which is, we are seeing more profitability outside of the U.S. So in the short-term, I see it as an issue that we will work through; in the long-term, it is something that we have to maybe think about and change the way in which we are currently financing our business.

And do you see on the manufactured products, do you think '09 will be better than '08 at current levels? Can you even see that far out?

It's -- there is clearly a -- we are setting historical precedent, I think, if terms of the demand for, in the steel and oil and gas market, so it would be hard to look at a recent period in global history and see how the demand has lasted and grown this much this long. Having said that, you don't have to pick up the Wall Street Journal for long on any day of the week and see that oil prices are up, steel prices are up. So, those are what are driving our business. So, to the extent that you think oil will continue to trade at $120 a barrel, $130 a barrel, $100 a barrel, we continue them to having to drill for oil . If they have got a drill, they are going to buy our equipment. I feel the same way about the steel market. It's tough at this point as we get, really pretty deep into a great cycle here to guarantee anything. But certainly, the markets are strong for us, and obviously, natural gas is another important market for us. So if you believe in those, then you have to believe in that business for us .

I guess you would expect in '09 to get some improvement on the rubber side.

Yes, we are working at that one, that's a tougher one, and we're continuing to work on that, but as I've said, it is not a very profitable business unit for us. We have corrected and stemmed some of those significant losses, but we are hoping to see that business start to give some profitability. As we mentioned in the past, it is not a very big business, it's just -- I talk about it in the context of margins for the segment because it was losing a fair amount of money. So as we've kind of reversed that, it's been important. It will, as gets incrementally better, it will be helpful, but not significant in the margins for --

And my last question was, on the Supply Technology, the heavy truck side was kind of,predictable to some extent, the decline that was kind of expected. But given the slow down of the overall economic world or the environment, are you seeing more bidding or where do you see outside the heavy truck business in Supply Technology?

Absolutely. One of the challenges we discussed on -- just briefly when we gave -- on our fourth quarter call, we gave our estimate for the year also threw out a few of the challenges to getting to that estimate was the raw material increases as happening on virtually every front . I talked a little bit a few minutes ago about fuel surcharges on freight, et cetera, et cetera. We view this as, although it's challenged our sales group to focus less on new sales and more on getting price increases, which is a negative, if you will, we are seeing a lot of quoting activity and we see a lot of opportunity. As we discussed in the past, we are a big player in what is a relatively new market, and as people look to get their cost down and bring down the total cost of procuring these items, we are going to be on the bid sheet. We are going to be a person they going to want to talk to. And we are globally competitive, and we are very good at this. So, we view this as an opportunity. It's hard to know month by month how we are going to win and lose. But net/net over the next year to 18 months, I view this is an unbelievable opportunity.

Outside the heavy truck business?

Yes. Well, in the entire truck business, there are going to be truck guys trying to keep their costs down, too. But I mean, right now, manufacturers who deal direct with their customers are calling up and saying we need 25% price increase. So whether it is a company that historically has gone direct now it is looking for someone helped them with their engineering or helped them with their inventory management or some of the plethora of services that we provide, they are going to pick up the phone and call us.

Okay great. Thank you.

As a reminder, if you would like to pose a question. (OPERATOR INSTRUCTIONS). Our next question is coming from [Jana Ishwar] with Singular Research. Please go ahead..

Hi. About a year ago, you guys said the aluminum business was kind of a -- you were now left with just a handful of players. And given the it hasn't really improved that much year-over-year, is that number going to contract? And does that present any opportunities for Park-Ohio?

Well, the results you are seeing are behind our expectations on the revenue and profit side. But what we thought of a year ago, in addressing the consolidation and the reduction of suppliers is -- continues to happen, it is a real thing, and what we are seeing here is, we expected, based on our presentations last year, that we wrote considerable new business in the latter part of the year. We continue to write new business . We have just written a new contract for starts in '09 on a very exciting platform, because when we sell into this market, it is very important you try to sell and capture parts on what will be perceived, historically, the highest-selling vehicles. So we have accomplished that, but the -- what we have accomplished is being masked by the fact of a tremendous reduction in units in the first quarter of this year. When this auto industry returns to any sense of historical sales, the effort and the planning that we put into place, I think, will begin to show. So we are largely where we expected to be, and of course, when we started it two years ago, we never thought the volume would be what we are seeing in the first quarter. I don't think anybody anticipated that in the auto industry. I can imagine what other companies are going through, but the consolidation is going to be further. There are going to be very few people in this business. It's a very capital intense. There is a great art form connected to making safety critical parts, great expectations, and the people that are buying up and have acquired some of these assets, are all very knowledgeable people. So, we are not changing our position on the fact that we are going to capture a larger share of the market, there will be less people in the marketplace, but more important, because we have the quality and the lowest cost. And hopefully I'll be able to start answering in a very positive way. But, what we need is more cars sold and hopefully that will happen, because it's affecting a lot of manufacturing companies. But we still think we are on the right track.

My question really relates to if, given the current condition, the independent companies -- I mean the car companies would probably have only on the single business company, only aluminum could have, given that they don't have a spurt of business to support the business, support the aluminum business, could encounter difficulty that could be up for sale. And hence, that would be one of the premises that we had a year ago, in which case the consolidation, only brings greater strength to Park-Ohio, but also reduces the number of players, and hence the pricing gets better overall.

Well the -- in that period, two company in this space have gone bankrupt and three companies have been sold. So there's been a tremendous amount of activity in this space, relative to consolidation and this is happening on an ongoing basis. There was a transaction in the last two weeks in this business with the sale of assets which ultimately, the company that was in the business bought some assets and are closing that plant and consolidating into an existing plant. That's just happened in the last two weeks. But this has been going on and we could possibly go through of all the transactions that are happening . But there is a major company with sales that were over $100 million go out of business and been shut down in the last year. So, there is a lot happening along those lines and there is going to be quite a scramble for production capabilities. Something else I'll share with you. A lot of the aluminum casting business that was sent to China a two or three years ago is coming back to America. The companies were set up in China to make safety critical parts for -- that were being shipped back against the American manufacturers, that's coming to a -- very quickly, it's changing because the aluminum price is the same in China, but their auto industry is warming up and getting so strong that they want to ship the parts and the capability with the aluminum they have into their own industry, which again, particularly in the die casting area, brings that capacity back to America because of the supply chain and cost, it just -- even the people that initiated these concepts going there and buying aluminum parts and putting it in a truck or in a container and shipping it here, all of a sudden, they have realized all the working capital involved and the piece price was secondary. So, there are numerous fronts here that would indicate that this can happen. I probably, hopefully, appeared you would know a lot about this business. This aluminum business as I have been personally involved in for over 30 years, so hopefully, the trend is where we want it to go and we'll be the benefactor.

Okay. Then on the balance sheet, I see that the line has increased. Is that a seasonal thing, or is that going to continue for the rest of the year?

Yes, Jana, this is Rich Elliott. Working capital always goes up in the first quarter as we are looking towards strength at the end of the first quarter and the second quarter volumes. So, it's similar to last year.

Okay. And for the rest of the year, you expect to get back there to where you were, and there are no plans to pay down debt at this point, is that right?

No. Perhaps I wasn't clear enough on my prior comments . We do expect working capital, it's usually at peak at the end of the first quarter, so we would expect that to moderate towards the end of the year, and I think I gave a range of between $20 million and $25 million in free cash flow. It's very difficult for us to say exactly how much of that we could use to repay U.S. bank debt, because of the foreign profits issue. But certainly, we expect to pay down some.

Okay. Well, is that paying down some from Q-1, or paying down some from last year?

Paying some down -- that budget was for the year. So we expect our debt balance at the end of 2008 to be lower than the end of 2007.

Okay. Thank you.

Thank you.

Next question is from [John Balma], private investor. Please go ahead.

Good morning, guys. How are you doing?

Fine, thank you.

Great. A couple balance sheet items, real quickly. Rich, other assets went up $5 million. What was that about?

There is a lot of other assets. A lot of that's just related to the growth of the capital equipment group, and the way that we account for that is unbilled assets -- or unbilled sales.

Okay. Pricing on the revolver, is that LIBOR based?.

Yes. We're in LIBOR, plus less than 100 bips today.

Thank you. Any portion of that $0.23 deferral of earnings from fourth quarter, you talked about in the fourth quarter? Is that going to be ratably brought into this year, is that any portion of the first quarter, or how does that get spread into 08? Or does that go longer?

Yes, John, we continue to explore that and understand better how we can manage the percent to completion issue. At this point, we have not been able to modify the process at all to do anything differently than we did at the end of the year. So, to the extent that there would be, "a recoup", that did not exist if the first quarter. There is no reason to believe it will exist in any significant way during all of 08, although we continue to try and fine tune the way we are dealing with our supply base and capital equipment to see if we can do that. But, we expect that to continue to perform at the level it is, even on the new process of completion accounting.

Okay. So I mean, essentially, that could be like a $0.23 pop at any given quarter when --

I would expect it, to the extent we are able to manage our supply base in a way which would move the supplier contract itself more toward percentage of completion, it would be a portion of that $0.23 as a one-time hit. It would not be all of it. How much? I'm not sure. But if it was $0.10 or something -- there's no -- it could be nothing, it could be $0.10 . We are really -- it is still such a fresh idea and it involves in some cases, John, subcontractors that are global. So, a lot of this is around documentation, it is a lot of nitpicky kind of stuff, and candidly, John, the business is performing well enough, we are cautious about trying to be penny wise and pound foolish in terms of trying to go out there for a couple cent hit that might irritate our supply base, might cause some discomfort in the growing relationships that we have out there.

I understand. On the -- Rich, getting back to cash taxes for the -- cash taxes paid for the first quarter were actually greater than GAAP taxes. Is that just for first quarter of '07 carry forward, and what are you estimating for full year cash taxes -- cash pay taxes this year?

Okay. Yes, this is Rich again. The figure was slightly higher just because of the timing of cash payments as opposed to the accrual basis of accounting. For the full year, at this point, we are still expecting in 2008 not to pay any cash federal income tax, or very minimal to the AMT. And so we are still anticipating something like a 15% or 16% cash tax rate.

Excellent. Let's see here. [Malalian], in one of his recent conference calls seemed a little bit, almost silently optimistic with some of the so-called green cars coming out or the Ford product line '08, '09. Do you anticipate -- if there is a pickup in the smaller cars or so-called green cars, is that already based in your aluminum products sales volumes, or could you see some pickup there kind of going forward?

Well as that emerges, we would -- we see virtually zero of that at this particular point. In other words, that's very much on the drawing board and there's a lot of conversations about it. But, we haven't seen any real substantial, measurable change in that. But one thing we know about all cars, they are going to have steering knuckles and brake calipers and brake cylinders.

And finally, without -- I understand it's, the guidance is the guidance, but obviously, if you take a look at the first quarter and you subtract that from your full year guidance, are you looking for stronger in the second half? Or are you going to be picking up the second half? What gives you the confidence to reaffirm that guidance given first quarter's earnings?

John, that's -- you are right, if you subtract, it looks like we are going to have a stronger year. The answer is yes. Obviously, and the reason it is yes is a couple of things. But most notably is, we were a little disappointed in the margin performance of the Supply Technologies segment in the first quarter, and as I mention in passing, we are working on it. We are working on it by getting price increases that are reflective of what is going on in the marketplace. So, that certainly is one of the objectives as we move forward throughout the year, and I think we'll begin to see the benefit of that. Certainly, as we've discussed here, we don't expect aluminum to perform -- underperform at the level it is throughout the rest of the year. Not to suggest it won't continue to be a tough business. So certainly, the other units show signs of continuing to be at the level at that currently. So I would expect improvement in the two underperforming units throughout the balance of a year.

I know you haven't given sales guidance, but again, if you project that, your EPS guidance, are you anticipating more to gain on the bottom line as opposed to top line as we kind of look forward for the balance of the year?

Yes.

Fair enough. Thanks, guys.

Thank you very much

Thank you. Our final question is a follow-up from Richard Paget with Morgan Joseph. Please go ahead.

Looking at some of the comments in one of your larger truck customers, they were talking about volumes for North American trucks being flat for the year, and if you look at the first quarter numbers, they were down 20%, 25%, which suggests a possible rebound. In the second half. Just to be clear that you guys aren't building that into your guidance at this point?

Well, I think we are building, Richard, the expectation that the year will be flat. So, I think that we would believe, also, particularly in light of some of the settling of some of the strike that were out there, that we may see a little bit better volume in the balance of the year. But we said, I think a number of times, we do for the expect better volumes in '08 than '07. But the first quarter was pretty dismal as it relates to some of the volumes, and especially because of the strike activity. Keep if mind as we've talked, obviously from our viewpoint, the good news is we are at the flat spot or at the bottom of this thing, and we have no idea in -- we we're like you, getting mixed signals. But remember the -- our -- some major customers, Volvo, particularly in Mack and people like American Axle all have taken strikes early this year. And maybe in anticipation of the fact that they like to get those issues behind them as they anticipate the increased revenues. So, we have to keep that in mind that these folks have had a lot of shut down days. So that would indicate to me that in selling any trucks at all, although they are being hampered by fuel costs, that when this thing turns, it's going to turn very, very, very quickly. I can't imagine they have much inventories at the dealer levels in the trucking business.

Right. With the new regs coming in 2010, the window keeps getting tighter and tighter, so --

And that's the, as we have discussed, the -- we are carrying a tremendous amount of expenses to be prepared for. And we'd like to see it start to move up very slowly and anticipate it and do all the things we are all trying to guess. But ultimately, it's not in the numbers, and when it comes, it's going to come earlier or later than we anticipate. But we all know that the regs are out there. Probably the thing that's holding it up is the uncertainty in all the gas pricing and the trucking company is trying to get their new models and get out and change pricing when you are faced with the fact you are going to have to buy different models -- different trucks and they are going to cost more money and you have gas prices going up, one of the things I think is happening is it's taking awhile for the trucking companies to actually get to their customers and negotiate new pricing and new models that allow them to make a profit. So, there is a lot going other in the trucking business. It's desperate now across the board, but there will be trucks and this will be resolved and we should be a very important part of it. So we're prepared.

Okay. Thanks, that's it for me.

At this time, I'm showing no further questions. I would like to turn the conference back over to Mr. Edward Crawford.

Again, thank you very much for your patience and we look forward to speaking with you at the end of the second quarter and being more optimistic, but I think we are doing all the basic things that are required to keep this ship going in the right direction. Again, thank you for your support and we appreciate it. Good day.

Thank you. This does conclude today's Park-Ohio Holdings conference call. You may all disconnect and have a great day.