Park Ohio Holdings Corp (PKOH) 2012 Q4 法說會逐字稿

Good morning and welcome to the Park-Ohio fourth quarter 2013 results conference call. At this time all participants are in a listen only mode. After the presentation, the Company will conduct a question and answer session. Today's conference is also being recorded. If you have any objections you may disconnect at this time. I will now like to turn the conference over to Mr. Edward Crawford, Chairman and CEO. Please proceed, Mr. Crawford.

Good morning. Scott, would you address the Safe Harbor Statement, please.

Thank you, Ed. Good morning, everyone. Thank you for joining us today. If you have not received a copy of our earnings press release, you can find it on the Investor Relations section of our corporate Web site at pkoh.com.

I want to remind everybody that certain statements we make on today's call, both during opening remarks and during the question and answer session, may be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. A list of relevant risks and uncertainties may be found in the earnings press release, as well as in the Company's 2011 10-K filed with the SEC on March 15, 2012. The Company undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Additionally, the Company may discuss EBITDA and earnings as adjusted. EBITDA and earnings as adjusted are not measures of performance under generally accepted accounting principles. For a reconciliation of net income to EBITDA and earnings as reported to earnings as adjusted, please refer to the Company's recent earnings release.

At this time, I will turn the call back over to Ed.

Thank you, Scott. I will introduce Matt Crawford who is President and COO of the Company and, Matt, I'd like you to run through the results for 2012 please.

Great. Thank you and good morning. We appreciate you all joining us today. During our third quarter earnings teleconference, we discussed how uncertainty had impacted our customers and that there was an overall lack of clarity into the end of year demand across most of our businesses. As it turns out, while revenue was slightly less than where we expected it to be, there was a fair amount of volatility in individual customer demands. Fortunately, our higher margin businesses performed a little better than we expected and its improved margin mix and disciplined spending contributed to a very strong finish to 2012. In fact, 2012 was a record year for revenues and net income here at Park-Ohio.

Highlights of the fourth quarter financial performance included an 18% increase in revenues to $275.7 million and earnings of $0.63 per diluted share. EBITDA defined totaled $27.3 million which was a 48% increase over EBITDA in the fourth quarter of 2011. Our fourth quarter 2011 earnings were $1.58 per diluted share but included $11.3 million of earnings associated with the reversal of deferred tax asset valuation allowances. Excluding those earnings associated with the reversal of these valuation allowances of $0.94 in 2011, as adjusted were $0.64 per share in '11 or roughly flat to 2012.

On a full year basis, we achieved record revenues of $1.134 billion, an increase of 17% year-over-year. And our record reported net income increased 8% to $31.8 million in 2012, from $29.4 million in 2011. Our earnings per diluted share for 2012 were $2.62 per diluted share and these results included the unusual settlement of litigation charge of $13 million, or $0.68 per share. Our earnings per diluted share in 2011 were $2.45.

Now let's look more closely at fourth quarter performance. The increase in net sales is primarily attributable to acquisitions and the impact of new program ramp ups in our aluminum business within the assembly component segment. This increase was partially offset by a decrease in net sales in the supply technology segment. The gross profit margin percentage of 17.5% in the fourth quarter, which is 110 basis points better than the 16.4% gross profit margin in the fourth quarter of last year. This change is largely due to the inclusion of FRS and the favorable changes in the sales mix in the supply technology segment.

SG&A expenses as a percent of net sales of 10% in 2012 compared very favorably to 10.6% in 2011. We continue to watch our spending very carefully but we were making investments to support our ongoing controlled ascent, particularly in the aluminums casting business and supply technologies international expansion. Interest expense increased by $700,000 to $6.6 million in 2012, from $5.9 million in 2011. Although our 2012 debt carries a lower average borrowing rate, the average borrowings were higher in the fourth quarter of 2012 due to the acquisition of FRS.

Turning to taxes, we recognized approximately $1.7 million of higher incremental income tax expense during the quarter which was related to the catch up of foreign income tax expense recognition. Accordingly, our effective tax rate for the year was 37%. As a reminder, we fully utilized our remaining US NOL in 2012. Cash taxes were $5.5 million for the year, with $700,000 being paid in the fourth quarter.

Now looking at the segments, supply technology is first. Revenues represented 39% of the consolidated revenues during the fourth quarter of 2012. Revenues decreased in the supply technology segment 8% to $108 million compared to 2011. We continue to see revenue growth in the recreational markets, as well as lawn and garden and from new customer sales. However, we saw many of our other markets experienced demand softness related to holiday shut downs allowing for fewer ship days or weaker fundamentals. Notably, for the first quarterly period in 2012, we saw heavy duty truck market demand decline from prior year quarter to current quarter levels. We also selectively exited two customer accounts which did not meet our ROI expectations.

On a positive note, volumes in the new year have strengthened. Also our international growth initiatives, which focus on gaining new business and supporting our current customers as they grow on a global basis, continued successfully. We also continued to add resources to our sales and marketing team and are currently quoting an excess of $100 million of annual business. Segment operating income declined 4% to $6.5 million. Despite some unfavorable revenue trending as discussed above, segment operating income margin grew 20 basis points to 6% compared to the prior year. We continue to realize good product and customer mix, including the introduction of new items into our supply chain offering, the pairing of some low margin business and we remain committed to strong expense management.

Next looking at engineer product segment. Engineer product's revenues represented approximately 31% of consolidated revenues. Net sales decreased 1% to $84 million compared to the fourth quarter of 2011. The slight decrease in the quarter, after successive quarters of revenue increases, was attributable to some of the fourth quarter uncertainty that existed at the large OEM's, particularly regarding new equipment and ongoing weakness in the international markets. Segment operating income grew 15% to $12.4 million. Segment operating income margin grew 200 basis points to 14.7.

These earnings improvements were the result of the attainment of operational leverage and good product mix favoring our after market, as well as efficiency improvements in our Forge division as a result of recent capital investments. As we look forward, while the capacity building environment which drives large orders continues to be restrained, we are pleased to see some early signs of increased order activity to start the year. However, as there are still some economic uncertainty in the customer base expected for the first half of 2013, we will continue to carefully and closely observe our customer's order patterns and quarterly manage our spending as we proceed.

Now looking at assembly component segment. Assembly components revenue represented approximately 30% of consolidated revenues. Net sales increased 164% to $84 million compared to the fourth quarter of 2011. The incremental revenue from the FRS acquisition is the primary contributor to the significant increase in net sales. However, each product line within the segment contributed increased revenues in the current quarter. On the strength of some of the new program launches secured in the aluminum business, revenues in the aluminum business increased 26% as compared to the prior year. While we are excited to see these improved aluminum results, the customer program launch is still lagging our expectations and our projections.

As we expect our customers programs to pick up momentum and more new programs to come on board in the first quarter, there should be another step change in the first quarter revenues that carry on for the first half of the year. Then, additional programs will lead to a ramp up in volumes in the third quarter of 2013. Segment operating income grew to $5.6 million and segment operating income margin grew to 6.7. While the addition of FRS was a significant contributor to this increase, each business unit within the segment contributed to the earnings improvement year-over-year. Specifically, as it relates to FRS, we continue to experience success through both Park-Ohio synergies and FRS strategic initiatives with a thoughtful execution of our integration plan.

Next take a moment to talk about cash flows. Operating cash flows were -- are $55.9 million for 2012 which compares to $35.9 million for 2011, a 56% improvement. Improved pre-tax earnings are the primary contributor to the increased net capital expenditures were $23.7 million for 2012. I refer to net capital expenditures because we entered into some low interest rate sale lease back transactions to finance some of our capital expenditures in 2012. We are very excited about our record performance in 2012 but we are already looking ahead to 2013, which we believe will be a new record year for Park-Ohio.

We currently forecast our consolidated 2013 net sales to be approximately 8% higher than 2012. Our forecast recognizes the lack of any significant catalyst in our current economic environment and as a result, we forecast a stronger second half of 2013 compared to the first. We are forecasting more significant revenue growth in the assembly component segment as a full year of FRS revenues will be realized in 2013. New programs continue to launch in our aluminum business and generate some new modest revenue from our Mexican bolt-on acquisition in the rubber business. Given the demand uncertainty from our large regional equipment manufacturers, we are forecasting very modest organic growth in 2013 for our engineered product segment and flat sales for our supply technology segment where demand in the truck market has declined and offset some of our substantial new business gains.

Our earnings will benefit from the significant growth in assembly components, margin should improve in supply technology segments as the segment benefits from improved product mix. Given the change and the expected customer product mix in engineered product segment and the recent record performance, there may be a slight fall off in margins in 2013 but the margins will be strong. Even with modest flat top -- even with modest flat top line growth in the supply technology segment and engineer product segment forecasted for 2013, the earnings in these two segments will be strong and sustainable.

Based on the above, we are forecasting our earnings per diluted share to be in the range of $3.65 to $3.95, compared to our reported earnings of $2.62 per diluted share in 2012. We expect 2013 earnings to increase between 39% and 51%. In addition, we were forecasting EBITDA as defined to be in the range of $119 million to $124 million for 2013. We are forecasting operating cash flows of $59 million which is higher than 2012 levels. As a result of this improved earnings performance and strong cash flow generation, we are forecasting our leverage to be under 3.1 on a gross debt basis and under 2.5 to 1 on the net basis by the end of 2013.

We currently forecast capital spending to total $25 million, with $14 million of this amount representing growth capital for machining equipment for the new program launches in the aluminum portion of the assembly component segment. Expect depreciation and amortization to be approximately $22 million. And we believe our effective tax rate will be approximately 36% in 2013. Close by saying how excited we are with the record performance in 2012 and the prospects for 2013. Thank you very much.

Great job, Matt. Well, we built a very solid and successful Park-Ohio in the last 20 years. In 1992 we were $60 million in sales. Just came off our billion-plus and more important, your management team during that period navigated a number of economic compressions, particularly the one of 2009 and 2010. Today we have three outstanding business silos with proven management teams. So I would like to announce our goal based on our customers worldwide, based on our ability to touch around the world, world class manufacturing companies with service and with capital equipment, and the success we are having in every and each of our units. The goal of reaching a run rate of $2 billion plus by 2017.

We feel we have the team, the organization. It's taken awhile to build Park-Ohio to where we can really accelerate the growth under control. So as we talked about when we came out of the crisis in 2010, we are beginning our ascent and I think we are off to a great start. We are going to grow this company at a higher rate than might anyone might expect and we are going to be able to do that, again, because all the time and energy we have in the past placed in developing relationships around the world with our customers. We can grow organically with our customers, we can add new customers and I think we have proven that we can do a terrific job of adding bolt-on activities to our current silos.

Thank you very much and we will be glad to open the call for questions.

(Operator Instructions)

Richard Paget, Imperial Capital.

You talked about the 2017 goal of having $2 billion in sales run rate by then. And given about 8% growth next year, that implies kind of a CAGR of around 12%, 13%. You mentioned that there was going to be some bolt-on acquisitions built into those assumptions. What is the break down between organic growth and acquired growth that you are thinking about?

Well, I will have Matt answer that question in detail. Keep in mind, we are looking at a four or five year period. Sometimes you will have more acceleration than organic and occasionally in spurts to the bolt-ons. Matt, why don't you get into more detail for Richard.

I'm happy to. Good morning, Richard. Important to note is that our plan over the five year term anticipates about 50% organic and 50% acquired growth. As it relates to our 2013 forecast, there is no expectation of any acquisitions in that number. As you know, we always tend to have our iron in the fire as it relates to a potential bolt-on acquisition. While we are not assured of any of them at this point, it would not be atypical for us to find an opportunity like that.

Right. Longer term, is 50% the growth eventually going to come from acquisitions? Is it a 25%? You will get there one way or another?

I think I started by saying we expect 50% roughly (Inaudible).

If you look out to '17 and that's the goal between '10 to accomplish, hopefully sooner, there will be -- we are going to concentrate and we believe we have plenty of room in the growth cycle with our current customers, particularly as Asia becomes more active. Let's look at the auto industry and there is more cars being made in China than in North America. Obviously we are participating in that and hope to participate further. There are a lot of things that will help organically to grow the business. The acquisitions, the bolt-ons we don't pick the time. We pick the transactions. When they come and we think they are great, we will take them. The net result is that I think it's fair to assume it will be 50-50 over the stretch.

Okay. And then with -- now that you have FRS under your belt for a couple of quarters now and you have a better idea of the ramp up of some of the new business, how should we be thinking about what the longer term target margins are for assembly components?

Well, we pointed out in -- let me take each of the units. The FRS side of the business, we've talked about our ability to get in and expand the commercial hose business, not necessarily gas filler business which is the heart and soul of that company today. We talked about that as an opportunity to grow substantially like selling products through our supply tech distribution units. That is still the goal. We still think there is going to be hopefully considerable revenue there or over a long haul, but particularly beginning in this year.

The other side, the aluminum business, it is, again, every single day there is a more announcement of more aluminum in the cars. No slow down in it. It looks like Chrysler is going to open up Jeep Liberty in China. They think the Jeep Liberty over there is going to be equivalent to Levis in China relative to having an American product, because the Chinese cars do not work, there is no quality. There is no control. So it's still a buyer's choice over there is American or the European cars on the high end.

We are still expect tremendous results. We have been talking about it for a long time out of the general aluminum side of it. And that's clearly with getting up and getting the large volume of increased revenues into the cycle, into the plants producing revenue. You are seeing it now, you will see more of it in '13 but you will really see it in '14, '15 and '16. And the question or the challenge we have is how deep do we want to go in this business when we fill up our capacity? We have been talking about this for four years. We bought a couple of companies when things were down in the aluminum business, when no one wanted to invest in the automobile business and we increased our capacity to $250 million to $300 million. We hope we will fill that up first and then secondly, we will have to make a decision if we are going to go deeper into that business.

And as far as FRS is concerned, it's still wonderful as we've spoken before. We already have a contract with one of the big three to open up FRS in China in 2015 to supply fuel filler systems. And there are a number of other platforms that we are currently, in our silos that could be in that investment. That particular segment has a very, very bright future as expected. And is one where we spent a considerable amount of money, the acquisition number one. And the necessary CapEx to go into the machining business on the aluminum side. I think some of the components in the beautiful decision and I think we are going to get results we expected in the next two or three years.

Okay. If I go way back, I think it's 2003, you guys did double digit margins in that business. Is that still attainable? Or, should we just think high single digits when everything is firing on all cylinders?

Richard, this is Matt. We are not prepared to announce a target operating margin at this point clearly. Having said that, I think we've been clear in the past that we believe that operating margins in the aluminum business can reach high single digits to low double digits. The quality of earnings at FRS continues to be excellent even though we have seen some shifts in volume. I think you are going to have to make your own estimates from that point.

Richard, the time you are talking about, you and I have discussed this numerous times before, at one time jet aluminum reached a 9% EBIT threshold. Can we obtain that? Hopefully that's clearly a goal. I'm not uncomfortable with the fact that we can return to that level anyway.

All right, thanks. I'll get back in queue.

Thank you.

Ajay Kejriwal, FBR.

Very happy to see you mention the 2017 goal. Applaud that. Maybe if I can start on that 2017 goal. It helps provide a framework as to where the Company is headed. Maybe walk us through the thought process behind this as to why now. Is it that you see the portfolio and cash flow is a little more stable, that you can look out and plan longer term? Or, is it that having gone through 2008 and '09, you now are in a position to kind of, already, the worst is behind us, let's look out and plan for growth?

This is Matt. All of the above. I think you characterized how we feel very well. I think that our intrinsic cash flow now can support the kind of growth that we are talking about without adding leverage to the Company, which is critical in our strategic plan to grow the business. We have always felt that we had good business prospects with businesses that can grow at a multiple GDP, whether that's aluminum riding the trend of the cafe requirements or international growth, whether it's supply technologists with their opportunities to follow there and customers to higher growth regions in the world.

We've always felt good about it but, candidly, we were quite careful through the recession. We are a cash flow company. We made some progressive cuts, I think, in the higher growth areas of the business. We are reinvesting in those areas now, whether they be in sales and marketing people in supply tech or R&D people on our capital equipment business. And having gone through that process over the last four to six months, we feel comfortable as it relates to these organic growth goals and our expectations of what we typically see through the cycle for acquisition candidates. I think you characterized the feeling here very well.

Excellent. Then on acquisitions, and I know all of your businesses have good organic potential. Maybe on acquisitions, are you thinking more supply tech and manufactured products, it sounds like aluminum still have lots of capacity and you are ramping up on a large order there. Talk about how you are thinking about acquisitions, please.

Ajay, we do not intend to stray from our philosophy that you have seen us over the last several years. We believe each of our business segments has bolt-on acquisition candidates out there that are available to us. We candidly don't necessarily savor one over the other. I think you've appropriately identified our casting business and our rubber extruding business. Part of that FRS is those that have some capacity we are trying to fill up. Obviously, those would be candidates more likely for internal growth capital than for acquisition. We tend to be opportunistic and I think you can continue to expect that from us.

Excellent. Then nice to see you putting a share buyback authorization in place. How should we be thinking about this? Is this a place holder or are buybacks going to be an increasing use of your cash flow here?

Ajay, we've had one in place virtually all the time over the last number of years. We decided candidly to get it back out there and remind everybody that we are authorized. We have -- we had some modest activity in the buyback arena. And the reality of it is was this prompted because we don't like our valuation? Maybe. I think we are anxious to keep that option on the table.

Excellent. Then one last one from me before I get back in line. So you mentioned assembly components kind of ramping up here --

Excuse me. I'm sorry. I want to finish that thought for a second. I don't want you to interpret that as shift. My point is there is not a strategic shift in direction here. The vast majority of our cash flow is earmarked for growth. I want to make that clear. I don't want anyone to think the timing of this announcement would suggest otherwise.

Thanks for that clarification. On the assembly component, you're ramping up aluminum business. Maybe just walk through. I think you commented that it's still a little bit below expectations in terms of the program launches. Is it at the customers end? Or, is it you are working through on the factory floor on your end to kind of meet those schedules?

Quite frankly, it's a combination of all. There was a design change in a pre-launch, pre-cap system on the largest unit, it roots down the design that we set in motion to be produced at high levels was pushed back at least four to five months with the design change by the customer. But that has been resolved and we are coming online right now. When you are trying to bring up $125 million worth of new business in three plants, it's not uncommon to run a little late. We are meeting all of the customer's expectations. That's the most important thing. The plants are very, very busy.

And that $125 million, is that an annual run rate in '14?

It's new business. When we made that statement that we written $125 million, that would be all $125 million would be in '14 we are ramping up to that and then you add what the business that was there before, that's how you get the numbers that we are talking about or dreaming about.

You are showing the results here. Congratulations. I will get back in queue.

Steve Barger, KeyBanc Capital Markets.

I want to -- sorry if I missed this. Do you expect getting more free cash flow in 2013 than the $26 million you posted last year?

Actually, it's going to be close. We do have a working capital build at the end of the year, as Matt mentioned. The second half of the year is going to be stronger for Park-Ohio than the first half. We will have a build-up in receivables at the end of the year based on the model that we have. It will be pretty close from a free cash flow perspective.

And Matt, going back to your comments, the vast majority of cash flow is earmarked for growth. If you go through a period where the acquisitions just aren't coming together the way you wanted, if cash starts to accumulate on the balance sheet, should we just view that as having more fire power and getting to your goal of reducing your net debt ratio?

Yes, I would -- clearly we've generally viewed the right bolt-on transaction for Park-Ohio to be either immediately or in the near term a deleveraging transaction. You are right. Our forecast did not incorporate any expectations of any acquisitions for 2013 at that point, at this point. So our leverage forecast on a gross and net basis for year-end was anticipated in my comments to be 3-ish and 2.5-ish. You are right. I talked about operating cash flow for 2013 to be in the $60 million range. At least for the moment, until we find a better use for it, a substantial piece of that would be used to deleverage.

Steve, let me point out two things I want to make sure we understand exactly how we are viewing the bolt-ons and the organic growth. The organic growth out here, there is a test in annual business we take relative to the type of working capital we have to provide for an individual silo unit to take on new business. Also, on the other side, when it comes to the bolt-ons, there is a standard return that the bolt-on must meet and that's driven by the purchase price. So the bolt-ons must really fit a very tight criteria. So we are not, just because we have $50 million on the balance sheet, doing an acquisition that's outside of the guidelines. So this is not something where we are changing to grow to get to $2 billion. There has been no change in the philosophy of how to buy companies out here and how to operate this company.

We are not going off and buying a hotel chain. We are going to stay in the things we understand. We have a proven track record of buying these bolt-ons at very attractive prices and attractive prices to me means under a multiple of 4. Things haven't change out there and I don't want anyone to leave this call with stars in their eyes that we are going to try to accelerate this thing. And if we do an acquisition, we will be on our terms and if we don't do one for two years, we will get around to doing one. We understand where we want to go and that's why it's a goal.

Got it. And to that point, and you talked about this a little bit, but when you think about your 27 target, if assembly is going to be the big driver of a lot of that growth as you fill the business up, can you just talk about what you expect out of supply technology and engineered from an organic growth standpoint, broadly speaking?

Sure, Steve. This is Matt. I think that as those of you who have followed the Company, supply tech has historically been the engine for growth for Park-Ohio. We anticipate that trend to continue along with other parts of our business. The results in 2012 are a little bit misleading. New business activity continues to be active, as I mentioned. We were quoting a heck of a lot. Our initiatives, particularly in following our US based customers abroad, are very exciting.

The growth characteristics embedded in supply technologies are still there. We've talked about a mid to high single digits. We still believe that. There was some dampening of a major market in heavy duty truck at the end of 2012. We did cut loose a couple customers that we thought not only didn't fit our return model in the current period, but didn't really fit our business model long term. While that hurt at the revenue line, it was, as you can see, was augmented at the margin line. That -- I think I don't want to mislead anyone to the fact that supply tech still is a multiple GDP type grower for Park-Ohio. Taking a breather for a couple of different reasons.

Engineered products is a little trickier. Engineered products is a research development driven business. It is also a business about building out geographies to attain a greater share of the after market business for our massive base of induction and forging equipment that is spread around the globe. We are currently in 12 countries and continuing to invest and look at markets like Brazil or a deeper dive into India. And that is a slightly more cyclical business.

But I want to stress that where we are currently is a very interesting environment. 2012 was a record year in many ways. But the key markets in that business are not strong right now. That business key end market is steel. Steel is very weak right now, particularly primary steel and capacity building steel. Asian markets are critical for that business. They have been weak. While I think it's a little harder to predict sustained growth in that business, I will say that, that business is not hitting on all cylinders by any stretch of the imagination and we do expect, over the near term as those markets improve, some upside.

Steve, let me point out again, get some clarity in this, we expect each silo, every business unit to meet internal goals relative to organic growth. There isn't one where the assembly products gets a higher number. Everyone has been in and agreed that they are going to meet the goals that we have set collectively to get to this number. And for the first time in the history of this company, we are having a gathering in Cleveland in April and there is 151 individuals from around the world, from every single corner that are all our businesses. We don't have one great business. We don't have one great business that has two businesses. We have big, big customers around the world.

This company can go a lot faster than you could imagine because all of the cut points. We don't have to take a bigger market from someone that we are in business competing with. We have markets around the world. And when we bring you 150 individuals here that are connected to sales, and we always share and we think about cross selling. Cross selling, cross selling. Same customers worldwide. But there isn't one unit that Park-Ohio is not expected to meet the goals in their particular silo to get to the $2 billion run rate.

Yes, some are looking very good right now. Assembly products looks very good right now out of the chute. And there are some that little slower at developing but everyone will get there. And I can't think of one company. We have had individual meetings and I can't think of one company in which the goal isn't of the executives running that company to do their part in reaching this run rate. So I expect growth and I think we will get growth from everyone.

That is a really good detail. Appreciate that. Just one housekeeping question. Can you tell us how much revenue you stepped away from, from the two customers in supply tech?

Steve, I'd rather not be specific.

Okay. That's great. I will get back in line and see if anyone has a question.

For what it's worth, in a relatively flat environment, the supply tech business generally follows GDP. So you can probably get a sense of it by backing into what a flat quarter would have looked like.

Okay. Very good.

Jay Harris, Axiom capital.

Good morning, gentlemen. You've got a great business plan and you seem to be implementing it quite proficiently. I have a question about heavy duty trucks and the percentage of your business that's exposed to that marketplace. A year ago what would you have said or maybe even after the acquisition of the fluid routing, what percentage of your revenues comes from those assemblies?

I'm sorry, Jay. You are saying from class 5 through 8 heavy duty truck, is that what we are talking about?

Yes.

I would estimate our heavy duty truck exposure across our business to be somewhere in the neighborhood of 10% to 12%. That's an estimate.

And --

And that tends to be, obviously, somewhat volatile and specifically to your question of year over year, heavy duty truck was very strong the end of 2011.

Going to class 8 trucks, capital spending for those trucks were -- the peak quarterly rate last year was the June quarter. How much did your revenues decline as a result of the decline in that capital spending? I realize that some of your customers may have been better placed and suffered less erosion in coming orders than others. Can you give us some insight?

I would, at a high level, articulate that exiting the Navistar business was wise for a number of reasons.

I'm not talking about exiting anything. I'm talking about the decline in capital spend for the trucks and how that affected fluid routing and/or supply technologies.

I think I'm trying to answer the question so let me try again. I think our customer list and book of business happens, in our opinion, to be those -- particularly since we have left Navistar-- to be those customers which have benefited on market share basis. I think that while -- but largely -- but our performance has tracked largely what you would see in ACT and other industry information that talks about class A build production, which talked about a significant decline in order and production activity through the third and fourth quarter. While I think our book of business fairs slightly better, I think that it would be -- I think you could assume that we followed industry trends largely.

When did you exit the Navistar business?

Several years ago. Really not --

If capital spending for class A trucks in the fourth quarter were running 30% below the June quarter, is that the appropriate ratio to put on your business?

As I pointed out, I think we might fair slightly better than the industry, but we were going to be subject to the same type of compression, yes.

The reason I ask the question is that capital spending is going to start -- has started to come off bottom and within five quarters probably will be back at peak levels. And I'm looking for some measure of revenue sensitivity to that kind of a development.

Revenue sensitivity to the projected earnings --

Cut the capital spending.

What impact are you trying to get out of this? What happened in '12 or what will happen in '13, '14 and '15.

I'm trying to get insight as to what is going to happen in '13 and '14. Capital spending for these trucks were down very significantly.

I think --

And I think they are going to recover. And so I'm trying to get some idea of the revenue leverage from a recovery.

We are in -- from our perspective, and I think that most of the industry shares this perspective, from -- you are right. The order book has picked up slightly in February. There has been some increased trend in terms of the class A order book. Having said that, we are still off a pretty low base and most people expect an extremely slow start to 2013 with a number of weeks being taken out of the main production schedules, with a slight improvement as the year goes on. The most optimistic forecasters from a production standpoint expect flat as best case scenario. Most expect a year over year decline '12 to '13. Our business plan incorporates that thinking.

I would expect that in '14 we will get back to prior peak levels. And that's some --

From your mouth to God's ears.

He might be listening. You mentioned -- in the formal remarks you mentioned that you had acquired as a tuck in, a rubber processing operation, I think, in Mexico. When was that done?

We have been in this but it was officially completed --

It was December 1.

Because I can't find a press release on it. That's why.

It was strategically very important for a variety of reasons that I am happy to go into. But from a math perspective, added very little revenue or profitability on an immediate basis or on an acquired base.

What did it do for you strategically?

We have a very large relationship with one of the Japanese auto companies in our rubber unit in Ohio. And that plant is beginning to reach a level where we do not have any capacity there. We decided to, with the customer support, buy a little operation, we were talking 15 individuals just across the border but had the type of quality background we needed and we have transferred some work there and we also plan to develop some of our more important rubber products for FRS, the new injector systems and the new power units for the top of the small engines, better known as turbo charging. It's not significant today except it's the first time we have been to Mexico in operations from the standpoint of manufacturing rubber products. We have been there for many years with our other units. I think it's the beginning.

On the last conference call -- I thought you were through. Do you have any more?

No, I'm finished.

On the last conference call, one of the items that was listed as a reason for a sequential decline in business activity -- talked so much I forgot it. Was the learning curve experience in your aluminum division, as you started to process new orders for new forms, et cetera? What can you say about the production efficiencies as you're ramping up your aluminum division at this point?

They exceed production per day and the quality per day that we expected.

All right. Is there any likelihood of a tuck-in acquisition this year?

As Matthew, I think, said, we are always looking at opportunities. Pat Fogarty who is very experienced in this field for us. We are looking at numerous things. But again, it is all about price point and how well it fits. We are, as we say, have our eye out for the opportunities.

Okay. Well thank you very much. Keep up the good work.

Well, thanks, Jay.

Steve Barger, KeyBanc Capital Market.

Thanks for letting me back on. Just a quick follow-up modeling question. Can you tell me what the revenue contribution from FRS was in the quarter and can you break out for us what FRS margin was versus that of the legacy business?

We really are just reporting on a segment basis. We don't drill down into each one of the business units with that kind of detail, Steve.

Okay. Thanks.

At this time, there are no further questions. Are there any closing remarks?

Yes, thank you. We, at Park-Ohio, would like to thank all of the stake holders out there for giving us an opportunity to reach our goals of $2 billion plus by 2017. It will be a joint effort but I think we have the organization, the team and the support throughout to accomplish it. Thank you very much for joining us today and look forward to seeing you in the future.

This concludes the Park-Ohio fourth quarter 2012 results conference call. You may now disconnect.